Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 (no fee required)
For the Year Ended December 31, 2001
OR
|_| Transition report pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934 (no fee
required) For the transition period from ____ to
____
Commission File number 0-24175
ATEL Capital Equipment Fund VII, L.P.
California 94-3248318
---------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
235 Pine Street, 6th Floor, San Francisco, California 94104
(Address of principal executive offices)
Registrant's telephone number, including area code (415) 989-8800
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Limited Partnership
Units
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
State the aggregate market value of voting stock held by non-affiliates of the
registrant: Inapplicable
DOCUMENTS INCORPORATED BY REFERENCE
Prospectus dated November 29, 1996, filed pursuant to Rule 424(b) (Commission
File No. 333-08879) is hereby incorporated by reference into Part IV hereof.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
1
PART I
Item 1: BUSINESS
General Development of Business
ATEL Capital Equipment Fund VII, L.P. (the Partnership) was formed under the
laws of the state of California in May 1996. The Partnership was formed for the
purpose of acquiring equipment to engage in equipment leasing and sales
activities. The General Partner of the Partnership is ATEL Financial Services
LLC (ATEL). Prior to converting to a limited liability company structure, the
General Partner was formerly known as ATEL Financial Corporation.
The Partnership conducted a public offering of 15,000,000 Units of Limited
Partnership Interest (Units) at a price of $10 per Unit. On January 7, 1997, the
Partnership commenced operations in its primary business (leasing activities).
As of November 27, 1998, the Partnership had received subscriptions for
15,000,000 ($150,000,000) Limited Partnership Units and the offering was
terminated. As of December 31, 2001, 14,996,050 Units were issued and
outstanding.
The Partnership's principal objectives are to invest in a diversified portfolio
of equipment which will (i) preserve, protect and return the Partnership's
invested capital; (ii) generate regular distributions to the partners of cash
from operations and cash from sales or refinancing, with any balance remaining
after certain minimum distributions to be used to purchase additional equipment
during the reinvestment period, ending December 31, 2004 and (iii) provide
additional distributions following the reinvestment period and until all
equipment has been sold. The Partnership is governed by its Limited Partnership
Agreement.
Narrative Description of Business
The Partnership has acquired and intends to acquire various types of equipment
and to lease such equipment pursuant to "Operating" leases and "High Payout"
leases, where "Operating" leases are defined as being leases in which the
minimum lease payments during the initial lease term do not recover the full
cost of the equipment and "High Payout" leases recover at least 90% of such
cost. It is the intention of the General Partner that a majority of the
aggregate purchase price of equipment will represent equipment leased under
"High Payout" leases upon final investment of the net proceeds of the offering
and that no more than 20% of the aggregate purchase price of equipment will be
invested in equipment acquired from a single manufacturer.
The Partnership will generally only purchase equipment for which a lease exists
or for which a lease will be entered into at the time of the purchase.
As of December 31, 2001, the Partnership had purchased equipment with a total
acquisition price of $295,738,953.
The Partnership's objective is to lease a minimum of 75% of the equipment
acquired with the net proceeds of the offering to lessees which (i) have an
aggregate credit rating by Moody's Investor Service, Inc. of Baa or better, or
the credit equivalent as determined by the General Partner, with the aggregate
rating weighted to account for the original equipment cost for each item leased
or (ii) are established hospitals with histories of profitability or
municipalities. The balance of the original equipment portfolio may include
equipment leased to lessees which, although deemed creditworthy by the General
Partner, would not satisfy the general credit rating criteria for the portfolio.
In excess of 75% of the equipment acquired with the net proceeds of the offering
(based on original purchase cost) has been leased to lessees with an aggregate
credit rating of Baa or better or to such hospitals or municipalities.
2
During 2001 and 2000, no single lessee generated more than 10% of the
Partnership's lease revenues. During 1999 certain lessees generated significant
portions of the Partnership's total lease revenues as follows:
Lessee Type of Equipment 2001 2000 1999
------ ----------------- ---- ---- ----
Burlington Northern Santa Fe Railroad Locomotives & intermodal * * 10%
Company containers
* Less than 10%.
These percentages are not expected to be comparable in future periods.
The equipment leasing industry is highly competitive. Equipment manufacturers,
corporations, partnerships and others offer users an alternative to the purchase
of most types of equipment with payment terms which vary widely depending on the
lease term and type of equipment. The ability of the Partnership to keep the
equipment leased and/or operating and the terms of the acquisitions, leases and
dispositions of equipment depends on various factors (many of which are not in
the control of the General Partner or the Partnership), such as general economic
conditions, including the effects of inflation or recession, and fluctuations in
supply and demand for various types of equipment resulting from, among other
things, technological and economic obsolescence.
The General Partner will seek to limit the amount invested in equipment to any
single lessee to not more than 20% of the aggregate purchase price of equipment
owned at any time during the reinvestment period.
The business of the Partnership is not seasonal.
The Partnership has no full time employees.
Equipment Leasing Activities
Through December 31, 2001, the Partnership has disposed of certain leased assets
as set forth below:
Excess of
Type of Original Rents Over
Equipment Equipment Cost Sale Price Expenses *
--------- -------------- ---------- ----------
Manufacturing $20,148,978 $ 6,598,632 $ 12,995,002
Transportation 15,633,616 7,357,523 12,511,925
Aircraft 3,764,124 4,330,088 1,814,760
Other 2,146,575 340,470 1,354,717
Office automation 6,200,335 911,459 6,044,229
Food processing 1,879,008 1,304,001 1,662,983
Furniture and fixtures 1,350,493 765,340 1,068,345
Mining 816,729 888,685 173,808
Materials handling 572,978 25,095 746,386
---------------- ---------------- -----------------
$52,512,836 $ 22,521,293 $ 38,372,155
================ ================ =================
* Includes only those expenses directly related to the production of the related
rents.
The Partnership has acquired a diversified portfolio of equipment. The equipment
has been leased to lessees in various industries. The following tables set forth
the types of equipment acquired by the Partnership through December 31, 2001 and
the industries to which the assets have been leased. The Partnership has
purchased certain assets subject to existing non-recourse debt. For financial
statement purposes, non-recourse debt has been offset against the investment in
certain direct finance leases where the right of offset exists.
3
Purchase Price Excluding Percentage of Total
Asset Types Acquisition Fees Acquisitions
----------- ---------------- ------------
Transportation, rail cars $ 64,328,409 21.76%
Manufacturing 45,709,520 15.46%
Mining 30,756,101 10.40%
Transportation, other 26,723,940 9.04%
Transportation, intermodal containers 26,631,519 9.01%
Marine vessels 22,335,250 7.55%
Motor Vehicles 12,519,832 4.23%
Office automation 11,449,934 3.87%
Materials handling 9,942,309 3.36%
Medical 9,133,951 3.09%
Aircraft 6,310,979 2.13%
Railroad locomotives 5,010,960 1.69%
Other * 24,886,249 8.41%
----------------- -----------------
$ 295,738,953 100.00%
================= =================
Purchase Price Excluding Percentage of Total
Industry of Lessee Acquisition Fees Acquisitions
------------------ ---------------- ------------
Transportation, rail $ 73,779,368 24.95%
Municipalities 45,050,058 15.23%
Transportation, other 43,079,361 14.57%
Manufacturing, other 34,283,793 11.59%
Electronics 26,062,302 8.81%
Mining 17,670,967 5.98%
Business services 15,093,493 5.10%
Primary metals 13,251,254 4.48%
Other * 27,468,357 9.29%
----------------- -----------------
$ 295,738,953 100.00%
================= =================
* Individual amounts included in "Other" represent less than 2.5% of the total.
For further information regarding the Partnership's equipment lease portfolio as
of December 31, 2001, see Note 3 to the financial statements, Investments in
equipment and leases, set forth in Item 8, Financial Statements and
Supplementary Data.
Item 2. PROPERTIES
The Partnership does not own or lease any real property, plant or material
physical properties other than the equipment held for lease as set forth in Item
1.
Item 3. LEGAL PROCEEDINGS
No material legal proceedings are currently pending against the Partnership or
against any of its assets. The following is a discussion of legal matters
involving the Partnership, but which do not represent claims against the
Partnership or its assets.
Applied Magnetics Corporation:
In January 2000, Applied Magnetics Corporation filed for protection from
creditors under Chapter 11 of the U.S. Bankruptcy Code. The Partnership had
assets with a total net book value of $8,048,095 leased to Applied Magnetics
Corporation at the bankruptcy filing date. On January 31, 2000, the General
Partner was appointed to the Official Committee of Unsecured Creditors and
currently serves as the Chairperson of the Committee. Procedures were quickly
undertaken for the liquidation of the Partnership's leased equipment, which
proceeds resulted in recoveries of $1,773,798 or 21.7% of original equipment
cost. As of November 1, 2000, liquidation of the assets was completed.
4
The debtor filed a Plan of Reorganization (the "Plan"), which was approved by a
vote of the creditors of the debtor in October 2001. The Plan provided that the
Debtor change its name to "Integrated Micro-Technology", and enter into a new
line of business, the manufacture and production of "micro-machines". As part of
the Plan, the Partnership, along with the other unsecured creditors, receives a
proportionate share of their unsecured claims, in the form of ownership shares
and warrants in the newly formed business. The success of this new business plan
is highly uncertain.
The Partnership anticipates additional amounts may be recoverable through its
equity interests in the reorganized lessee's business, however, any recoveries
above the amounts received upon liquidation of the Partnership's equipment are
highly uncertain and speculative.
Pioneer Companies, Inc.:
On July 31, 2001, petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code were filed by the Pioneer Companies, Inc., et al. The
Partnership's Proof of Claim was timely filed on October 14, 2001, with the
Bankruptcy Clerk in Houston. The Partnership is the successor in interest to
First Union Rail Corporation (FURC) under four (4) tank car lease schedules for
36 tank cars with Pioneer Chlor-Alkali Company, Inc. n/k/a Pioneer Americas,
Inc. (together, the "Lease"). FURC manages the Lease for the Partnership. The
Order Confirming Debtor's Joint Plan of Reorganization Under Chapter 11 of the
Bankruptcy Code ("Plan") was entered on November 28, 2001. The Effective Date,
as defined in the Plan, was December 31, 2001. Pursuant to Schedules 6.1(a)(x)
and 6.1(a)(y) of the Plan, the Lease was rejected by the debtor.
Although the equipment was to be returned to FURC by December 31, 2001, the
debtor has continued to use and pay for the equipment under the Lease on a
month-to-month basis. A letter agreement has been forwarded to debtor to
formalize an understanding for debtor's continued use of the equipment under the
terms of the Lease at least until March 31, 2002. The full extent of any
recovery is not known at this time.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP UNITS
AND RELATED MATTERS
Market Information
The Units are transferable subject to restrictions on transfers which have been
imposed under the securities laws of certain states. However, as a result of
such restrictions, the size of the Partnership and its investment objectives, to
the General Partner's knowledge, no established public secondary trading market
has developed and it is unlikely that a public trading market will develop in
the future.
Holders
As of December 31, 2001, a total of 5,586 investors were record holders of Units
in the Partnership.
5
Dividends
The Partnership does not make dividend distributions. However, the Limited
Partners of the Partnership are entitled to certain distributions as provided
under the Limited Partnership Agreement.
The General Partner has sole discretion in determining the amount of
distributions; provided, however, that the General Partner will not reinvest in
equipment, but will distribute, subject to payment of any obligations of the
Partnership, such available cash from operations and cash from sales or
refinancing as may be necessary to cause total distributions to the Limited
Partners for each year during the reinvestment period to equal $1.00 per Unit.
The reinvestment period ends December 31, 2004.
The rate for monthly distributions from 2001 operations was $0.0833 per Unit.
The distributions were paid in February 2001 through December 2001 and in
January 2002. For each quarterly distribution (paid in April, July and October
2001 and in January 2002) the rate was $0.25 per Unit. Distributions were from
2001 cash flows from operations.
The rate for monthly distributions from 2000 operations was $0.0833 per Unit.
The distributions were paid in February 2000 through December 2000 and in
January 2001. For each quarterly distribution (paid in April, July and October
2000 and in January 2001) the rate was $0.25 per Unit. Distributions were from
2000 cash flows from operations.
The rate for monthly distributions from 1999 operations was $0.0833 per Unit.
The distributions were paid in February 1999 through December 1999 and in
January 2000. For each quarterly distribution (paid in April, July and October
1999 and in January 2000) the rate was $0.25 per Unit. Distributions were from
1999 cash flows from operations.
The following table presents summarized information regarding distributions to
Limited Partners:
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Distributions of net income (loss) $ 0.01 $ 0.53 $ (0.17) $ 0.46 $ (0.20)
Return of investment 0.99 0.48 1.17 0.45 0.99
---------------- ----------------- ---------------- ----------------- -----------------
Distributions per Unit 1.00 1.01 1.00 0.91 0.79
Differences due to timing of distributions - (0.01) - 0.09 0.21
---------------- ----------------- ---------------- ----------------- -----------------
Nominal distribution rates from above $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
================ ================= ================ ================= =================
6
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Partnership at
December 31, 2001, 2000, 1999, 1998 and 1997. This financial data should be read
in conjunction with the financial statements and related notes included under
Part II Item 8.
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Gross revenues $30,646,525 $ 41,463,919 $ 39,634,771 $ 37,195,090 $ 7,373,981
Net income (loss) $ 2,939,818 $ 9,158,705 $ (2,159,370) $ 5,279,496 $ (738,233)
Weighted average Units outstanding 14,996,050 14,996,050 14,996,050 10,729,510 3,380,442
Net income (loss) allocated to
Limited Partners $ 140,295 $ 7,938,589 $ (2,622,996) $ 4,883,534 $ (682,866)
Net income (loss) per Unit, based on
weighted average Units outstanding $ 0.01 $ 0.53 $ (0.17) $ 0.46 $ (0.20)
Distributions per Unit, based on
weighted average Units outstanding $ 1.00 $ 1.01 $ 1.00 $ 0.91 $ 0.79
Total Assets $135,853,619 $ 157,600,746 $ 191,424,300 $ 212,456,902 $104,416,786
Non-recourse Debt $ 9,971,225 $ 15,452,741 $ 21,780,420 $ 16,599,347 $ 8,127,374
Other long-term debt $38,540,000 $ 44,877,000 $ 53,181,000 $ 61,553,000 $ -
Total Partners' Capital $79,492,851 $ 94,163,608 $ 101,313,784 $ 119,711,246 $ 53,900,414
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Partnership's public offering provided for a total maximum capitalization of
$150,000,000. As of November 27, 1998, the offering was concluded. As of that
date, subscriptions for 15,000,000 Units had been received and accepted.
The liquidity of the Partnership will vary in the future, increasing to the
extent cash flows from leases and proceeds of asset sales exceed expenses, and
decreasing as lease assets are acquired, as distributions are made to the
Limited Partners and to the extent expenses exceed cash flows from leases and
proceeds from asset sales.
As another source of liquidity, the Partnership is expected to have contractual
obligations with a diversified group of lessees for fixed lease terms at fixed
rental amounts. As the initial lease terms expire, the Partnership will re-lease
or sell the equipment. The future liquidity beyond the contractual minimum
rentals will depend on the General Partner's success in re-leasing or selling
the equipment as it comes off lease.
7
The Partnership participates with the General Partner and certain of its
affiliates in a $62,000,000 revolving line of credit with a financial
institution that includes certain financial covenants. The line of credit
expires on April 12, 2002. The General Partner is currently negotiating a new
line of credit and anticipates that the current line of credit will either be
replaced upon its expiration or that the current line of credit will be extended
until the new one is finalized. As of December 31, 2001, borrowings under the
facility were as follows:
Amount borrowed by the Partnership under the acquisition facility $ 4,100,000
Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition
facility 13,500,000
-----------------
Total borrowings under the acquisition facility 17,600,000
Amounts borrowed by the General Partner and its sister corporation under the warehouse facility * 10,999,501
-----------------
Total outstanding balance $ 28,599,501
=================
Total available under the line of credit $ 62,000,000
Total outstanding balance (28,599,501)
-----------------
Remaining availability $ 33,400,499
=================
* (Unaudited) The carrying value of the assets pledged as collateral and
financed at December 31, 2001 was $17,955,014.
Draws on the acquisition facility by any individual borrower are secured only by
that borrower's assets, including equipment and related leases. Borrowings on
the warehouse facility are recourse jointly to certain of the affiliated
partnerships and limited liability companies, the Partnership and the General
Partner.
The Partnership anticipates reinvesting a portion of lease payments from assets
owned in new leasing transactions. Such reinvestment will occur only after the
payment of all obligations, including debt service (both principal and
interest), the payment of management and acquisition fees to the General Partner
and providing for cash distributions to the Limited Partners. At December 31,
2001, the Partnership had commitments to purchase lease assets totaling
approximately $1,764,000.
As of December 31, 2001, cash balances consisted of working capital and amounts
reserved for distributions to be paid in January 2002, generated from operations
in 2001.
The Partnership currently has available adequate reserves to meet its immediate
cash requirements, but in the event those reserves were found to be inadequate,
the Partnership would likely be in a position to borrow against its current
portfolio to meet such requirements. The General Partner envisions no such
requirements for operating purposes.
In 1998, the Partnership established a $65 million receivables funding program
with a receivables financing company that issues commercial paper rated A1 from
Standard and Poors and P1 from Moody's Investor Services. In this receivables
funding program, the lenders received a general lien against all of the
otherwise unencumbered assets of the Partnership. The program provided for
borrowing at a variable interest rate and required the General Partner to enter
into interest rate swap agreements with certain hedge counterparties (also rated
A1/P1) to mitigate the interest rate risk associated with a variable rate note.
The General Partner anticipated that this program would allow the Partnership to
avail itself of lower cost debt than that available for individual non-recourse
debt transactions. The program expired as to new borrowings in February 2002.
8
See Item 7a and Note 5 to the financial statements for additional information
regarding this program and related interest rate swaps.
It is the intention of the Partnership to use the receivables funding program as
its primary source of debt financing. The Partnership will continue to use its
sources of non-recourse secured debt financing on a transaction basis as a means
of mitigating credit risk.
The General Partner expects that aggregate borrowings in the future will be
approximately 50% of aggregate equipment cost. In any event, the Limited
Partnership Agreement limits such borrowings to 50% of the total cost of
equipment, in aggregate.
See Note 4 to the financial statements for additional information regarding
non-recourse debt.
The Partnership commenced regular distributions, based on cash flows from
operations, beginning with the month of January 1997. See Items 5 and 6 of this
report for additional information regarding distributions.
If inflation in the general economy becomes significant, it may affect the
Partnership inasmuch as the residual (resale) values and rates on re-leases of
the Partnership's leased assets may increase as the costs of similar assets
increase. However, the Partnership's revenues from existing leases would not
increase, as such rates are generally fixed for the terms of the leases without
adjustment for inflation.
If interest rates increase significantly, the lease rates that the Partnership
can obtain on future leases will be expected to increase as the cost of capital
is a significant factor in the pricing of lease financing. Leases already in
place, for the most part, would not be affected by changes in interest rates.
Cash Flows
2001 vs. 2000:
Cash flows from operations decreased from $28,382,888 in 2000 to $23,869,682 in
2001, a decrease of $4,513,206. Rents from operating leases is the primary
source of operating cash flows. Sales of operating lease assets in 2000 and 2001
led to the decrease in operating lease revenues compared to 2000.
In 2001 and 2000, sources of cash from investing activities consisted of
proceeds from the sales of lease assets and from rents from direct financing
leases. Proceeds from the sales of lease assets decreased from $10,439,849 in
2000 to $3,830,077 in 2001, a decrease of $6,609,772. Rents from direct
financing leases decreased by $293,602 as a result of sales of lease assets in
2000 and 2001.
In 2001, financing sources of cash consisted of proceeds of long-term debt and
borrowings on the line of credit. In 2000, financing sources of cash consisted
of proceeds of long-term debt, proceeds of non-recourse debt and borrowings on
the line of credit. The proceeds of long-term debt were used to repay the line
of credit. The additional non-recourse debt was assumed as a part of the
acquisition of leased assets in 2001 and 2000.
Cash used to repay long-term debt decreased as a result of reduced scheduled
payments, net of the effect of the additional borrowings in 2001. Overall,
average debt balances were lower in 2001 than in 2000.
2000 vs. 1999:
Cash flows from operations decreased from $29,817,476 in 1999 to $28,382,888 in
2000, a decrease of $1,434,588. Rents from operating leases is the primary
source of operating cash flows. Purchases of operating lease assets in 1999 led
to the slight increase in operating lease revenues compared to 1999.
9
In 2000, sources of cash from investing activities consisted of proceeds from
the sales of lease assets and from rents from direct financing leases. Proceeds
from the sales of lease assets increased from $2,469,199 in 1999 to $10,439,849
in 2000, an increase of $7,970,650. Rents from direct financing leases decreased
by $851,900 as a result of lease maturities and sales of lease assets in 1999
and 2000.
In 2000, financing sources of cash consisted of proceeds of long-term debt,
proceeds of non-recourse debt and borrowings on the line of credit. The proceeds
of long-term debt were used to repay the line of credit. The additional
non-recourse debt was assumed as a part of the acquisition of leased assets in
2000.
Cash used for distributions to partners did not change significantly.
Non-recourse debt payments increased as a result of the early repayment of the
debt associated with the leases to Applied Magnetics. See Item 3 for a further
discussion of the Applied Magnetics lease.
Cash used to repay long-term debt decreased as a result scheduled payments, net
of the effect of the additional borrowings in 2000. Overall, average debt
balances were lower in 2000 than in 1999.
Results of Operations
As of January 7, 1997, subscriptions for the minimum amount of the offering
($1,200,000) had been received and accepted by the Partnership. As of that date,
the Partnership commenced operations in its primary business (leasing
activities). There were no operations in 1996.
2001 vs. 2000:
Operations resulted in net income of $2,939,818 in 2001 compared to $9,158,705
in 2000.
Revenues from leases decreased from $38,849,507 in 2000 to $31,726,016 in 2001,
a decrease of $7,123,491. Decreases resulted from asset sales in 2000 and in
2001. Gains and losses on sales of assets decreased from a gain of $2,381,787 in
2000 to a loss of $1,145,708 in 2001, a decrease of $3,527,495. Such gains and
losses are not expected to be consistent from one period to another.
Depreciation expense decreased in 2001 compared to 2000 as a result of asset
sales in 2000 and 2001.
Interest expense declined as a result of scheduled debt payments and the early
extinguishment of the Applied Magnetics debt in 2000. Total debt, including the
line of credit, decreased from $60,329,741 at December 31, 2000 to $52,611,225
at December 31, 2001.
2000 vs. 1999:
Operations resulted in net income of $9,158,705 compared to a loss of $2,159,370
in 1999.
Revenues from leases increased from $38,780,392 in 1999 to $38,849,507 in 2000,
an increase of $69,115. Increases resulting from asset purchases in 1999 and in
2000 were offset by the effects of assets sales. Gains on sales of assets
increased from $784,853 in 1999 to $2,381,787 in 2000, an increase of
$1,596,934. Such gains and losses are not expected to be consistent from one
period to another.
Depreciation expense increased slightly (less than 2%) compared to 1999 as a
result of asset acquisitions in 1999.
Interest expense declined as a result of scheduled debt payments and the early
extinguishment of the Applied Magnetics debt. These repayments and
extinguishments exceeded the amounts of new borrowings in 2000. Total debt,
including the line of credit, decreased from $86,111,420 at December 31, 1999 to
$60,329,741 at December 31, 2000.
10
In 2000, there were no new major lease defaults similar to the Applied Magnetics
default in 1999. Consequently, there were no new provisions for losses or
doubtful accounts in 2000.
The Partnership recognized an extraordinary gain on the early extinguishment of
debt of $2,056,574. This was related to the non-recourse debt on the Applied
Magnetics leases, which was extinguished upon foreclosure by the lender in 2000.
Derivative Financial Instruments
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established new accounting and
reporting standards for derivative instruments. SFAS No. 133 has been amended by
SFAS No. 137, issued in June 1999, and by SFAS No. 138, issued in June 2000.
SFAS No. 133, as amended, requires the Partnership to recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. It further provides criteria for derivative
instruments to be designated as fair value, cash flow, or foreign currency
hedges, and establishes accounting standards for reporting changes in the fair
value of the derivative instruments.
The Partnership adopted SFAS No. 133, as amended, on January 1, 2001. Upon
adoption, the Partnership recorded interest rate swap hedging instruments at
fair value in the balance sheet and recognized the offsetting gains or losses
reported in net income or other comprehensive income, as appropriate. See Note 5
to the financial statements for additional information.
Recent accounting pronouncement:
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a
segment of a business. SFAS 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. The Partnership expects
to adopt SFAS 144 as of January 1, 2002 and it does not expect that the adoption
of the Statement will have a significant impact on the Partnership's financial
position and results of operations.
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership, like most other companies, is exposed to certain market risks,
including primarily changes in interest rates. The Partnership believes its
exposure to other market risks including foreign currency exchange rate risk,
commodity risk and equity price risk are insignificant to both its financial
position and results of operations.
In general, the Partnership's strategy is to manage its exposure to interest
rate risk by obtaining fixed rate debt. Current fixed rate debt is structured so
as to match the cash flows required to service the debt to the payment streams
under fixed rate lease receivables. The payments under the leases are assigned
to the lenders in satisfaction of the debt. Furthermore, the Partnership has
historically been able to maintain a stable spread between its cost of funds and
lease yields in both periods of rising and falling interest rates. Nevertheless,
the Partnership frequently funds leases with its floating rate line of credit
and is, therefore, exposed to interest rate risk until fixed interest rate
financing is arranged, or the floating interest rate line of credit is repaid.
As of December 31, 2001, there was an outstanding balance of $4,100,000 on the
floating rate line of credit and the effective interest rate of the borrowings
was 4.75%.
11
Also, as described in the caption "Capital Resources and Liquidity," the
Partnership entered into a receivables funding facility in 1998. Since interest
on the outstanding balances under the facility varies, the Partnership is
exposed to market risks associated with changing interest rates. To hedge its
interest rate risk, the Partnership enters into interest rate swaps, which
effectively convert the underlying interest characteristic on the facility from
floating to fixed. Under the swap agreements, the Partnership makes or receives
variable interest payments to or from the counterparty based on a notional
principal amount. The net differential paid or received by the Partnership is
recognized as an adjustment to interest expense related to the facility
balances. The amount paid or received represents the difference between the
payments required under the variable interest rate facility and the amounts due
under facility at the fixed (hedged) interest rate. As of December 31, 2001,
borrowings on the facility were $38,540,000 and the associated variable interest
rate was 2.0624%. The average fixed interest rate achieved with the swap
agreements was 6.084%.
In general, these swap agreements eliminate the Partnership's interest rate risk
associated with variable rate borrowings. However, the Partnership is exposed to
and manages credit risk associated with the counterparty by dealing only with
institutions it considers financially sound. If these agreements were not in
place, based on the Partnership's facility borrowings at December 31, 2001, a
hypothetical 1.00% increase or decrease in market interest rates, would increase
or decrease the Partnership's 2002 variable interest expense by approximately
$322,000.
See the Notes to the financial statements for additional information.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Report of Independent Auditors, Financial Statements and Notes to
Financial Statements attached hereto at pages 13 through 31.
12
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Partners
ATEL Capital Equipment Fund VII, L.P.
We have audited the accompanying balance sheets of ATEL Capital Equipment Fund
VII, L.P. (Partnership) as of December 31, 2001 and 2000, and the related
statements of operations, changes in partners' capital and cash flows for each
of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ATEL Capital Equipment Fund
VII, L.P. at December 31, 2001 and 2000, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
San Francisco, California
February 1, 2002
13
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
2001 2000
---- ----
Cash and cash equivalents $ 936,189 $ 1,321,417
Accounts receivable, net of allowance for
doubtful accounts of $118,067 in 2001,
none in 2000 5,759,540 6,222,311
Other assets 108,015 90,011
Investments in equipment and leases 129,049,875 149,967,007
----------------- -----------------
Total assets $ 135,853,619 $157,600,746
================= =================
LIABILITIES AND PARTNERS' CAPITAL
Non-recourse debt $ 9,971,225 $ 15,452,741
Other long-term debt 38,540,000 44,877,000
Line of credit 4,100,000 -
Accounts payable and accruals:
General Partner 580,916 605,684
Other 510,598 703,761
Accrued interest payable 355,458 533,858
Interest rate swap contracts 1,326,006 -
Unearned lease income 976,565 1,264,094
----------------- -----------------
56,360,768 63,437,138
Total partners' capital 79,492,851 94,163,608
----------------- -----------------
Total liabilities and partners' capital $ 135,853,619 $157,600,746
================= =================
See accompanying notes.
14
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Revenues: 2001 2000 1999
---- ---- ----
Leasing activities:
Operating leases $ 30,657,648 $ 37,500,588 $ 36,784,290
Direct financing leases 1,068,368 1,153,226 1,852,614
Leveraged leases - 195,693 143,488
(Loss) gain on sales of assets (1,145,708) 2,381,787 784,853
Interest income 55,569 157,678 49,225
Other 10,648 74,947 20,301
---------------- ----------------- -----------------
30,646,525 41,463,919 39,634,771
Expenses:
Depreciation and amortization 20,023,249 25,306,146 24,868,782
Interest 4,029,695 5,307,064 6,082,904
Other 1,345,396 973,204 1,467,738
Equipment and incentive management fees to affiliates 1,175,912 1,770,779 1,892,306
Cost reimbursements to General Partner 851,382 917,952 556,577
Professional fees 163,006 86,643 146,794
Provision for doubtful accounts 118,067 - 724,906
Provision for losses and impairments - - 6,054,134
---------------- ----------------- -----------------
27,706,707 34,361,788 41,794,141
---------------- ----------------- -----------------
Income (loss) before extraordinary item 2,939,818 7,102,131 (2,159,370)
Extraordinary gain on early extinguishment of debt - 2,056,574 -
---------------- ----------------- -----------------
Net income (loss) $ 2,939,818 $ 9,158,705 $ (2,159,370)
================ ================= =================
Net income (loss):
General Partner $ 2,799,523 $ 1,220,116 $ 463,626
Limited Partners 140,295 7,938,589 (2,622,996)
---------------- ----------------- -----------------
$ 2,939,818 $ 9,158,705 $ (2,159,370)
================ ================= =================
Income (loss) before extraordinary item per Limited Partnership unit $ 0.01 $ 0.40 $ (0.17)
Extraordinary gain on early extinguishment of debt
per Limited Partnership unit - 0.13 -
---------------- ----------------- -----------------
Net income (loss) per Limited Partnership unit $ 0.01 $ 0.53 $ (0.17)
================ ================= =================
Weighted average number of units outstanding 14,996,050 14,996,050 14,996,050
See accompanying notes.
15
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Accumulated
Other
Comprehensive
Limited Partners General Income
----------------
Units Amount Partner (Loss) Total
----- ------ ------- ------ -----
Balance December 31, 1998 14,996,050 $ 120,428,411 $ (717,165) $ - $119,711,246
Distributions to Limited Partners
($1.00 per Unit) (14,977,030) - - (14,977,030)
Distributions to General Partner - (1,261,062) - (1,261,062)
Net income (2,622,996) 463,626 - (2,159,370)
---------------- ----------------- ---------------- ----------------- -----------------
Balance December 31, 1999 14,996,050 102,828,385 (1,514,601) - 101,313,784
Distributions to Limited Partners
($1.01 per Unit) (15,088,765) - - (15,088,765)
Distributions to General Partner - (1,220,116) - (1,220,116)
Net income (loss) 7,938,589 1,220,116 - 9,158,705
---------------- ----------------- ---------------- ----------------- -----------------
Balance December 31, 2000 14,996,050 95,678,209 (1,514,601) - 94,163,608
Distributions to Limited Partners
($1.00 per Unit) (14,999,647) - - (14,999,647)
Distributions to General Partner - (1,284,922) - (1,284,922)
Cumulative effect of change in
accounting principle at
January 1, 2001 - - 281,661 281,661
Unrealized decrease in value of
interest rate swap contracts - - (1,607,667) (1,607,667)
Net income 140,295 2,799,523 - 2,939,818
---------------- ----------------- ---------------- ----------------- -----------------
Balance December 31, 2001 14,996,050 $ 80,818,857 $ - $ (1,326,006) $ 79,492,851
================ ================= ================ ================= =================
See accompanying notes.
16
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
---- ---- ----
Operating activities:
Net income (loss) $ 2,939,818 $ 9,158,705 $ (2,159,370)
Adjustment to reconcile net income (loss) to net cash provided by
operating activities:
Leveraged lease income - (195,693) (143,488)
Depreciation and amortization 20,023,249 25,306,146 24,868,782
Provision for losses and impairments - - 6,054,134
Provision for doubtful accounts 118,067 - 724,906
Loss (gain) on sales of assets 1,145,708 (2,381,787) (784,853)
Extraordinary gain on early extinguishment of debt - (2,056,574) -
Changes in operating assets and liabilities:
Accounts receivable 344,704 (596,206) 29,875
Other assets (18,004) 39,996 39,996
Accounts payable, General Partner (24,768) (829,967) 1,057,696
Accounts payable, other (193,163) 277,865 (258,579)
Accrued interest payable (178,400) (180,839) (91,056)
Unearned lease income (287,529) (158,758) 479,433
---------------- ----------------- -----------------
Net cash provided by operating activities 23,869,682 28,382,888 29,817,476
---------------- ----------------- -----------------
Investing activities:
Proceeds from sales of assets 3,830,077 10,439,849 2,469,199
Reduction of net investment in direct financing leases 2,261,062 2,554,664 3,406,564
Purchases of equipment on direct financing leases (4,344,293) (1,678,000) (860,492)
Initial direct lease costs (48,560) (18,370) (880,362)
Purchases of equipment on operating leases (1,950,111) - (13,793,316)
---------------- ----------------- -----------------
Net cash (used in) provided by investing activities (251,825) 11,298,143 (9,658,407)
---------------- ----------------- -----------------
Financing activities:
Distributions to Limited Partners (14,999,647) (15,088,765) (14,977,030)
Distributions to General Partner (1,284,922) (1,220,116) (1,261,062)
Borrowings under line of credit 12,900,000 450,000 15,822,824
Repayments of borrowings under line of credit (8,800,000) (11,600,000) (16,454,531)
Proceeds of other long-term debt 8,000,000 11,700,000 9,000,000
Repayments of other long-term debt (14,337,000) (17,947,426) (17,372,000)
Repayments of non-recourse debt (5,481,516) (6,912,082) (4,339,675)
Proceeds of non-recourse debt - 584,403 9,520,748
---------------- ----------------- -----------------
Net cash used in financing activities (24,003,085) (40,033,986) (20,060,726)
---------------- ----------------- -----------------
Net (decrease) increase in cash and cash equivalents (385,228) (352,955) 98,343
Cash and cash equivalents at beginning of year 1,321,417 1,674,372 1,576,029
---------------- ----------------- -----------------
Cash and cash equivalents at end of year $ 936,189 $ 1,321,417 $ 1,674,372
================ ================= =================
17
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
STATEMENTS OF CASH FLOWS
(CONTINUED)
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
---- ---- ----
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 4,208,095 $ 5,487,903 $ 6,173,960
================ ================= =================
Schedule of non-cash transactions:
Extraordinary gain on early extinguishment of debt $ - $ 2,056,574 $ -
================ ================= =================
See accompanying notes.
18
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
1. Organization and Partnership matters:
ATEL Capital Equipment Fund VII, L.P. (the Partnership) was formed under the
laws of the state of California on May 17, 1996 for the purpose of acquiring
equipment to engage in equipment leasing and sales activities.
Upon the sale of the minimum amount of Units of Limited Partnership interest
(Units) (120,000 Units) ($1,200,000) and the receipt of the proceeds thereof on
January 7, 1997, the Partnership commenced operations.
The General Partner of the Partnership is ATEL Financial Services LLC (ATEL).
Prior to converting to a limited liability company structure, the General
Partner was formerly known as ATEL Financial Corporation.
The Partnership's business consists of leasing various types of equipment. As of
December 31, 2001, the original terms of the leases ranged from eighteen months
to eleven years.
Pursuant to the Limited Partnership Agreement, the General Partner receives
compensation and reimbursements for services rendered on behalf of the
Partnership (Note 6). The General Partner is required to maintain in the
Partnership reasonable cash reserves for working capital, the repurchase of
Units and contingencies.
2. Summary of significant accounting policies:
Equipment on operating leases:
Equipment on operating leases is stated at cost. Depreciation is being provided
by use of the straight-line method over the terms of the related leases to the
equipment's estimated residual values at the end of the leases.
Revenues from operating leases are recognized evenly over the lives of the
related leases.
Direct financing leases:
Income from direct financing lease transactions is reported using the financing
method of accounting, in which the Partnership's investment in the leased
property is reported as a receivable from the lessee to be recovered through
future rentals. The income portion of each rental payment is calculated so as to
generate a constant rate of return on the net receivable outstanding.
Investment in leveraged leases:
Leases which are financed principally with non-recourse debt at lease inception
and which meet certain other criteria are accounted for as leveraged leases.
Leveraged lease contracts receivable are stated net of the related non-recourse
debt service (which includes unpaid principal and aggregate interest on such
debt) plus estimated residual values. Unearned income represents the excess of
anticipated cash flows (after taking into account the related debt service and
residual values) over the investment in the lease and is amortized using a
constant rate of return applied to the net investment when such investment is
positive.
19
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
2. Summary of significant accounting policies (continued):
Statements of cash flows:
For purposes of the Statements of Cash Flows, cash and cash equivalents include
cash in banks and cash equivalent investments with original maturities of ninety
days or less.
Income taxes:
The Partnership does not provide for income taxes since all income and losses
are the liability of the individual partners and are allocated to the partners
for inclusion in their individual tax returns.
The tax basis of the Partnership's net assets and liabilities varies from the
amounts presented in these financial statements (unaudited):
2001 2000
---- ----
Financial statement basis of net assets $ 79,492,851 $ 94,163,608
Tax basis of net assets (1,474,318) 28,061,745
---------------- -----------------
Difference $ 80,967,169 $ 66,101,863
================ =================
The primary differences between the tax basis of net assets and the amounts
recorded in the financial statements are the result of differences in accounting
for syndication costs and differences between the depreciation methods used in
the financial statements and the Partnership's tax returns.
The following reconciles the net income (loss) reported in these financial
statements to the loss reported on the Partnership's federal tax return
(unaudited):
2001 2000 1999
---- ---- ----
Net income (loss) per financial statements $ 2,939,818 $ 9,158,705 $ (2,159,370)
Adjustment to depreciation expense (18,455,212) (20,229,067) (38,503,336)
Adjustments to lease revenues 2,381,967 573,208 3,664,666
Provision for losses (118,067) - 6,054,134
---------------- ----------------- -----------------
Net loss per federal tax return $ (13,251,494) $(10,497,154) $(30,943,906)
================ ================= =================
Per unit data:
Net income and distributions per unit are based upon the weighted average number
of units outstanding during the period.
20
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
2. Summary of significant accounting policies (continued):
Credit risk:
Financial instruments which potentially subject the Partnership to
concentrations of credit risk include cash and cash equivalents and accounts
receivable. The Partnership places its cash deposits and temporary cash
investments with creditworthy, high quality financial institutions. The
concentration of such deposits and temporary cash investments is not deemed to
create a significant risk to the Partnership. Accounts receivable represent
amounts due from lessees in various industries, related to equipment on
operating and direct financing leases. See Note 8 for a description of lessees
by industry as of December 31, 2001, 2000 and 1999.
Basis of presentation:
The accompanying financial statements as of December 31, 2001 and 2000 and for
the three years ended December 31, 2001 have been prepared in accordance with
accounting principles generally accepted in the United States. Certain prior
year amounts have been reclassified to conform to the current year presentation.
Use of estimates:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Such
estimates primarily relate to the determination of residual values at the end of
the lease term.
Reserve for losses and impairments:
The Partnership maintains a reserve on its investments in equipment and leases
for losses and impairments which are inherent in the portfolio as of the balance
sheet date. The General Partner's evaluation of the adequacy of the allowance is
a judgmental estimate that is based on a review of individual leases, past loss
experience and other factors. While the General Partner believes the allowance
is adequate to cover known losses, it is reasonably possible that the allowance
may change in the near term. However, such change is not expected to have a
material effect on the financial position or future operating results of the
Partnership. It is the Partnership's policy to charge off amounts which, in the
opinion of the General Partner, are not recoverable from lessees or the
disposition of the collateral. See Note 11.
Derivative financial instruments:
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established new accounting and
reporting standards for derivative instruments. SFAS No. 133 has been amended by
SFAS No. 137, issued in June 1999, and by SFAS No. 138, issued in June 2000.
SFAS No. 133, as amended, requires the Partnership to recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. It further provides criteria for derivative
instruments to be designated as fair value, cash flow, or foreign currency
hedges, and establishes accounting standards for reporting changes in the fair
value of the derivative instruments. Upon adoption on January 1, 2001, the
Partnership adjusted hedging instruments to fair value in the balance sheet and
recognized the offsetting gains or losses as adjustments to be reported in net
income or other comprehensive income, as appropriate.
21
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
2. Summary of significant accounting policies (continued):
The Partnership utilizes cash flow hedges comprised of interest rate swaps. Such
interest rate swaps are linked to and adjust effectively the interest rate
sensitivity of specific long-term debt.
The effective portion of the change in fair value of the hedging derivatives is
recorded in Accumulated Other Comprehensive Income (AOCI) and the ineffective
portion (if any) directly in earnings. Amounts in AOCI are reclassified into
earnings in a manner consistent with the earnings pattern of the underlying
hedged item (generally reflected in interest expense). If a hedged item is
dedesignated prior to maturity, previous adjustments to AOCI are recognized in
earnings to match the earnings recognition pattern of the hedged item (e.g.,
level yield amortization if hedging interest bearing instruments). Interest
income or expense on most hedging derivatives used to manage interest rate
exposure is recorded on an accrual basis, as an adjustment to the yield of the
link exposures over the periods covered by the contracts. This matches the
income recognition treatment of the exposure (i.e., the liabilities which are
carried at historical cost, with interest recorded on an accrual basis).
Credit exposure from derivative financial instruments arises from the risk of a
counterparty default on the derivative contract. The amount of the loss created
by the default is the replacement cost or current positive fair value of the
defaulted contract.
Recent accounting pronouncement:
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a
segment of a business. SFAS 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. The Partnership expects
to adopt SFAS 144 as of January 1, 2002 and it does not expect that the adoption
of the Statement will have a significant impact on the Partnership's financial
position and results of operations.
22
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
3. Investments in equipment and leases:
The Partnership's investments in equipment and leases consist of the following:
Depreciation
Expense or Reclass-
December 31, Amortization ifications or December 31,
2000 Additions of Leases Dispositions 2001
---- --------- --------- ------------ ----
Net investment in operating leases $131,717,168 $ 1,950,111 $ (19,829,145) $(12,771,545) $101,066,589
Net investment in direct financing
leases 17,087,466 4,344,293 (2,261,062) (238,776) 18,931,921
Reserve for losses and impairments (504,227) - - - (504,227)
Assets held for sale or lease 1,233,078 - - 8,034,536 9,267,614
Initial direct costs, net of
accumulated amortization of
$726,703 in 2001 and $532,599 in 2000 433,522 48,560 (194,104) - 287,978
---------------- ----------------- ---------------- ----------------- -----------------
$149,967,007 $ 6,342,964 $ (22,284,311) $ (4,975,785) $129,049,875
================ ================= ================ ================= =================
Operating leases:
Property on operating lease consists of the following:
Reclass-
December 31, ifications or December 31,
2000 Additions Dispositions 2001
---- --------- ------------ ----
Transportation $ 101,664,857 $ - $(20,876,173) $ 80,788,684
Marine vessels / barges 27,276,479 - (246,343) 27,030,136
Construction 23,002,563 - (170,600) 22,831,963
Manufacturing 11,801,318 - (2,098,517) 9,702,801
Mining 8,536,249 476,716 - 9,012,965
Other 5,108,831 1,473,395 (768,493) 5,813,733
Office automation 9,880,540 - (4,582,908) 5,297,632
Materials handling 5,559,474 - (293,820) 5,265,654
Communications 4,387,819 - - 4,387,819
----------------- ---------------- ----------------- -----------------
197,218,130 1,950,111 (29,036,854) 170,131,387
Less accumulated depreciation (65,500,962) (19,829,145) 16,265,309 (69,064,798)
----------------- ---------------- ----------------- -----------------
$ 131,717,168 $ (17,879,034) $(12,771,545) $101,066,589
================= ================ ================= =================
23
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
3. Investments in equipment and leases (continued):
Direct financing leases:
As of December 31, 2001, investment in direct financing leases consist of
various transportation, manufacturing and medical equipment. The following lists
the components of the Partnership's investment in direct financing leases as of
December 31, 2001 and 2000:
2001 2000
---- ----
Total minimum lease payments receivable $ 15,374,654 $ 14,005,112
Estimated residual values of leased equipment (unguaranteed) 8,678,613 8,443,602
---------------- -----------------
Investment in direct financing leases 24,053,267 22,448,714
Less unearned income (5,121,346) (5,361,248)
---------------- -----------------
Net investment in direct financing leases $ 18,931,921 $ 17,087,466
================ =================
All of the property on leases was acquired in the years 1997 through 2001.
At December 31, 2001, the aggregate amounts of future minimum lease payments
under operating and direct financing leases are as follows:
Direct
Year ending Operating Financing
December 31, Leases Leases Total
------------ ------ ------ -----
2002 $23,011,324 $ 3,627,497 $ 26,638,821
2003 14,472,424 3,234,832 17,707,256
2004 9,652,671 3,144,239 12,796,910
2005 6,430,498 3,083,206 9,513,704
2006 1,509,428 1,528,750 3,038,178
Thereafter 769,350 756,130 1,525,480
---------------- ----------------- ----------------
$55,845,695 $ 15,374,654 $ 71,220,349
================ ================= ================
24
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
3. Investments in equipment and leases (continued):
Reserves for losses and impairments and allowance for doubtful accounts:
Activity in the reserve for losses and impairments and allowances for doubtful
accounts consists of the following:
Allowance for Allowance for
reserves and doubtful
impairments accounts
Balance December 31, 1998 $ 131,232 $ -
Provision 6,054,134 724,906
Charge offs - (724,906)
----------------- ----------------
Balance December 31, 1999 6,185,366 -
Charge offs (5,681,139) -
----------------- ----------------
Balance December 31, 2000 504,227 -
Provision - 118,067
----------------- ----------------
Balance December 31, 2001 $ 504,227 $ 118,067
================= ================
At December 31, 2001, the Partnership had commitments to purchase lease assets
totaling approximately $1,764,000.
4. Non-recourse debt:
At December 31, 2001, non-recourse debt consists of notes payable to financial
institutions. The notes are due in varying monthly, quarterly and semi-annual
payments. Interest on the notes is at fixed rates from 7.0% to 16.6%. The notes
are secured by assignments of lease payments and pledges of assets. At December
31, 2001, the carrying value of the pledged assets is $24,132,681. The notes
mature from 2002 through 2008.
Future minimum payments of non-recourse debt are as follows:
Year ending
December 31, Principal Interest Total
2002 $ 5,757,071 $ 799,843 $ 6,556,914
2003 3,261,508 288,853 3,550,361
2004 298,403 67,364 365,767
2005 322,838 42,927 365,765
2006 216,850 20,179 237,029
Thereafter 114,555 5,418 119,973
---------------- ----------------- ----------------
$ 9,971,225 $ 1,224,584 $ 11,195,809
================ ================= ================
25
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
5. Other long-term debt:
In 1998, the Partnership entered into a $65 million receivables funding program
(the Program) with a receivables financing company that issues commercial paper
rated A1 by Standard and Poors and P1 by Moody's Investor Services. Under the
Program, the receivables financing company receives a general lien against all
of the otherwise unencumbered assets of the Partnership. The Program provides
for borrowing at a variable interest rate (2.0624% at December 31, 2001), based
on an index of A1 commercial paper.
The Program requires the General Partner on behalf of the Partnership, to enter
into various interest rate swaps with a financial institution (also rated A1/P1)
to manage interest rate exposure associated with variable rate obligations under
the Program by effectively converting the variable rate debt to fixed rates. As
of December 31, 2001, the Partnership receives or pays interest on a notional
principal of $38,540,000, based on the difference between nominal rates ranging
from 4.36% to 7.58% and the variable rate under the Program. No actual borrowing
or lending is involved. The termination of the swaps coincides with the maturity
of the debt. The differential to be paid or received is accrued as interest
rates change and is recognized currently as an adjustment to interest expense
related to the debt.
Borrowings under the Program are as follows:
Original Balance Payment Rate on
Amount December 31, Interest Swap
Date Borrowed Borrowed 2001 Agreement
------------- -------- ---- ---------
4/1/1998 $21,770,000 $ 4,900,000 6.220%
7/1/1998 25,000,000 5,628,000 6.155%
10/1/1998 20,000,000 9,076,000 5.550%
4/16/1999 9,000,000 3,122,000 5.890%
1/26/2000 11,700,000 8,427,000 7.580%
5/25/2001 2,000,000 1,785,000 5.790%
9/28/2001 6,000,000 5,602,000 4.360%
---------------- -----------------
$95,470,000 $ 38,540,000
================ =================
The long-term debt borrowings mature from 2002 through 2009. Future minimum
principal payments of long-term debt and annual swap notional reductions are as
follows:
Swap Notional / Rates on
Year ending Debt Interest Swap
December 31, Principal Interest Total Agreements*
--------- -------- ----- -----------
2002 $12,860,000 $ 1,954,451 $ 14,814,451 6.067% - 6.084%
2003 8,903,000 1,310,600 10,213,600 6.072% - 6.114%
2004 7,186,000 830,105 8,016,105 6.104% - 6.163%
2005 5,766,000 438,770 6,204,770 6.193% - 6.589%
2006 1,946,000 193,789 2,139,789 6.785% - 7.009%
2007 903,000 103,979 1,006,979 7.007% - 7.211%
2008 635,000 46,443 681,443 7.245% - 7.580%
2009 341,000 12,229 353,229 7.58%
---------------- --------------- --------------
$38,540,000 $ 4,890,366 $ 43,430,366
================ =============== ==============
* Represents the range of monthly weighted average fixed interest rates paid for
amounts maturing in the particular year. The receive-variable rate portion of
the swap represents commercial paper rates (2.0624% at December 31, 2001).
26
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
5. Other long-term debt (continued):
In 2001, the net effect of the interest rate swaps was to increase interest
expense by $622,647.
6. Related party transactions:
The terms of the Limited Partnership Agreement provide that the General Partner
and/or affiliates are entitled to receive certain fees for equipment
acquisition, management and resale and for management of the Partnership.
The Limited Partnership Agreement allows for the reimbursement of costs incurred
by the General Partner in providing administrative services to the Partnership.
Administrative services provided include Partnership accounting, investor
relations, legal counsel and lease and equipment documentation. The General
Partner is not reimbursed for services where it is entitled to receive a
separate fee as compensation for such services, such as acquisition and
disposition of equipment. Reimbursable costs incurred by the General Partner are
allocated to the Partnership based upon actual time incurred by employees
working on Partnership business and an allocation of rent and other costs based
on utilization studies.
Substantially all employees of the General Partner record time incurred in
performing administrative services on behalf of all of the Partnerships serviced
by the General Partner. The General Partner believes that the costs reimbursed
are the lower of (i) actual costs incurred on behalf of the Partnership or (ii)
the amount the Partnership would be required to pay independent parties for
comparable administrative services in the same geographic location and are
reimbursable in accordance with the Limited Partnership Agreement.
The General Partner and/or affiliates earned fees, commissions and
reimbursements, pursuant to the Limited Partnership Agreement as follows during
2001, 2000 and 1999:
2001 2000 1999
---- ---- ----
Incentive management fees (computed as 4.0% of distributions of cash from
operations, as defined in the Limited Partnership Agreement) and equipment
management fees (computed as 3.5% of gross revenues from operating leases, as
defined in the Limited Partnership Agreement plus 2% of gross revenues from full
payout leases, as defined in the Limited Partnership Agreement). $ 1,175,912 $ 1,770,779 $ 1,892,306
Administrative cost reimbursements to General Partner 851,382 917,952 556,577
---------------- ----------------- -----------------
$ 2,027,294 $ 2,688,731 $ 2,448,883
================ ================= =================
27
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
7. Partners' capital:
As of December 31, 2001, 14,996,050 Units ($149,960,050) were issued and
outstanding. The Partnership is authorized to issue up to 15,000,050 Units,
including the 50 Units issued to the Initial Limited Partners.
The Partnership's Net Profits, Net Losses, and Tax Credits are to be allocated
92.5% to the Limited Partners and 7.5% to the General Partner. In accordance
with the terms of the of Limited Partnership Agreement, an additional allocation
of income was made to the General Partner in 2001. The amount allocated was
determined so as to bring the General Partner's ending capital account balance
to zero.
Available Cash from Operations, as defined in the Limited Partnership Agreement,
is to be distributed as follows:
First, Distributions of Cash from Operations are to be 88.5% to the Limited
Partners, 7.5% to the General Partner and 4% to the General Partner or its
affiliate designated as the recipient of the Incentive Management Fee, until the
Limited Partners have received Aggregate Distributions in an amount equal to
their Original Invested Capital, as defined, plus a 10% per annum cumulative
(compounded daily) return on their Adjusted Invested Capital, as defined in the
Limited Partnership Agreement.
Second, 85% to the Limited Partners, 7.5% to the General Partner and 7.5% to the
General Partner or its affiliate designated as the recipient of the Incentive
Management Fee.
Available Cash from Sales or Refinancing, as defined in the Limited Partnership
Agreement, are to be distributed as follows:
First, Distributions of Sales or Refinancings are to be 92.5% to the Limited
Partners and 7.5% to the General Partner, until the Limited Partners have
received Aggregate Distributions in an amount equal to their Original Invested
Capital, as defined, plus a 10% per annum cumulative (compounded daily) return
on their Adjusted Invested Capital.
Second, 85% to the Limited Partners, 7.5% to the General Partner and 7.5% to the
General Partner or its affiliate designated as the recipient of the Incentive
Management Fee.
28
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
8. Concentration of credit risk and major customers:
The Partnership leases equipment to lessees in diversified industries. Leases
are subject to the General Partner's credit committee review. The leases provide
for the return of the equipment upon default.
As of December 31, 2001, 2000 and 1999, there were concentrations (greater than
10%) of equipment leased to lessees in certain industries (as a percentage of
total equipment cost) as follows:
2001 2000 1999
---- ---- ----
Municipalities 17% 16% 15%
Transportation, other 14% 12% *
Transportation, rail 13% 19% 19%
Electronics * * 12%
* Less than 10%
During 2001 and 2000, no customers comprised in excess of 10% of the
Partnership's revenues from leases. During 1999, one customer comprised 10% of
the Partnership's revenues from leases.
9. Line of credit:
The Partnership participates with the General Partner and certain of its
affiliates in a $62,000,000 revolving line of credit with a financial
institution that includes certain financial covenants. The line of credit
expires on April 12, 2002. The General Partner is currently negotiating a new
line of credit and anticipates that the current line of credit will either be
replaced upon its expiration or that the current line of credit will be extended
until the new one is finalized. As of December 31, 2001, borrowings under the
facility were as follows:
Amount borrowed by the Partnership under the acquisition facility $ 4,100,000
Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition
facility 13,500,000
-----------------
Total borrowings under the acquisition facility 17,600,000
Amounts borrowed by the General Partner and its sister corporation under the warehouse facility * 10,999,501
-----------------
Total outstanding balance $ 28,599,501
=================
Total available under the line of credit $ 62,000,000
Total outstanding balance (28,599,501)
-----------------
Remaining availability $ 33,400,499
=================
* (Unaudited) The carrying value of the assets pledged as collateral and
financed at December 31, 2001 was $17,955,014.
Draws on the acquisition facility by any individual borrower are secured only by
that borrower's assets, including equipment and related leases. Borrowings on
the warehouse facility are recourse jointly to certain of the affiliated
partnerships and limited liability companies, the Partnership and the General
Partner.
29
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
9. Line of credit (continued):
The Partnership borrowed $12,900,000, $450,000 and $15,822,824 under the line of
credit during 2001, 2000 and 1999, respectively. Repayments on the line of
credit were $8,800,000, $11,600,000 and $16,454,331 during 2001, 2000 and 1999,
respectively. Interest on the line of credit is based on either the thirty day
LIBOR rate or the bank's prime rate. The effective interest rate on borrowings
at December 31, 2001 was 4.75%.
The credit agreement includes certain financial covenants applicable to each
borrower. The Partnership was in compliance with its covenants as of December
31, 2001.
10. Fair value of financial instruments:
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value.
Cash and cash equivalents:
The carrying amount of cash and cash equivalents approximates fair value because
of the short-term maturity of these instruments.
Non-recourse debt:
The fair value of the Partnership's non-recourse debt is estimated using
discounted cash flow analyses, based on the Partnership's current incremental
borrowing rates for similar types of borrowing arrangements. The estimated fair
value of the Partnership's non-recourse debt at December 31, 2001 is
$10,318,479.
Other long-term debt:
The carrying value of the Partnership's other long-term debt its fair value at
December 31, 2001.
Line of credit:
The carrying amounts of the Partnership's variable rate line of credit
approximates fair value.
Interest rate swaps:
The fair value of interest rate swaps is estimated by obtaining independent
valuations or discounting the fixed cash flows paid under each swap using the
rate at which the Partnership could enter into new swaps of similar maturities.
Swaps are recorded at fair value at December 31, 2001.
30
ATEL CAPITAL EQUIPMENT FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
December 31, 2001
11. Extraordinary gain on extinguishment:
In January 2000, one of the Partnership's lessees filed for reorganization under
Chapter 11 of the United States Bankruptcy Code. The Partnership determined that
the assets under operating leases with a net book value of $8,048,095 at
December 31, 1999 leased to this particular lessee were impaired as of December
31, 1999. The Partnership estimated that the proceeds from the future sales of
those assets, which were financed with non-recourse debt, would not be
sufficient to satisfy the non-recourse lender. The debt balance was $2,056,474
at December 31, 1999. As a result, the Partnership fully reserved for those
assets as of December 31, 1999. The portion of the assets not financed with
non-recourse debt were written down to their expected net realizable value as of
December 31, 1999.
Upon foreclosure by the lender and upon sale of the financed assets in 2000, the
Partnership recognized an extraordinary gain on the extinguishment of the debt
$2,056,474 during the year ended December 31, 2000.
12. Other comprehensive income:
In 2001, 2000 and in 1999, other comprehensive income consisted of the
following:
2001 2000 1999
---- ---- ----
Net income (loss) $ 2,939,818 $ 9,158,705 $ (2,159,370)
Other comprehensive income:
Cumulative effect of change in accounting principle at January 1, 2001 281,661
Decrease in value of interest rate swap contracts (1,607,667) - -
---------------- ----------------- -----------------
Comprehensive net income (loss) $ 1,613,812 $ 9,158,705 $ (2,159,370)
================ ================= =================
31
Item 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The registrant is a Limited Partnership and, therefore, has no officers or
directors.
All of the outstanding capital stock of ATEL Financial Services LLC (the General
Partner) is held by ATEL Capital Group ("ACG"), a holding company formed to
control ATEL and affiliated companies. The outstanding voting capital stock of
ATEL Capital Group is owned 5% by A. J. Batt and 95% by Dean Cash.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"),
ATEL Investor Services ("AIS") and ATEL Financial Services LLC ("AFS") is a
wholly-owned subsidiary of ATEL Capital Group and performs services for the
Partnership. Acquisition services are performed for the Partnership by ALC,
equipment management, lease administration and asset disposition services are
performed by AEC, investor relations and communications services are performed
by AIS and general administrative services for the Partnership are performed by
AFS. ATEL Securities Corporation ("ASC") is a wholly-owned subsidiary of ATEL
Financial Services LLC.
The officers and directors of ATEL Capital Group and its affiliates are as
follows:
Dean L. Cash Chairman of the Board of Directors of ACG, AFS, ALC,
AEC, AIS and ASC; President and Chief Executive
Officer of ACG, AFS and AEC
Paritosh K. Choksi Director, Executive Vice President, Chief Operating
Officer and Chief Financial Officer of ACG, AFS,
ALC, AEC and AIS
Donald E. Carpenter Vice President and Controller of ACG, AFS, ALC, AEC
and AIS; Chief Financial Officer of ASC
Vasco H. Morais Senior Vice President, Secretary and General Counsel
for ACG, AFS, ALC, AIS and AEC
Dean L. Cash, age 51, joined ATEL as director of marketing in 1980 and has been
a vice president since 1981, executive vice president since 1983 and a director
since 1984. He has been President and CEO since April 2001. Prior to joining
ATEL, Mr. Cash was a senior marketing representative for Martin Marietta
Corporation, data systems division, from 1979 to 1980. From 1977 to 1979, he was
employed by General Electric Corporation, where he was an applications
specialist in the medical systems division and a marketing representative in the
information services division. Mr. Cash was a systems engineer with Electronic
Data Systems from 1975 to 1977, and was involved in maintaining and developing
software for commercial applications. Mr. Cash received a B.S. degree in
psychology and mathematics in 1972 and an M.B.A. degree with a concentration in
finance in 1975 from Florida State University. Mr. Cash is an arbitrator with
the American Arbitration Association.
32
Paritosh K. Choksi, age 48, joined ATEL in 1999 as a director, senior vice
president and its chief financial officer. He became its executive vice
president and COO in April 2001. Prior to joining ATEL, Mr. Choksi was chief
financial officer at Wink Communications, Inc. from 1997 to 1999. From 1977 to
1997, Mr. Choksi was with Phoenix American Incorporated, a financial services
and management company, where he held various positions during his tenure, and
was senior vice president, chief financial officer and director when he left the
company. Mr. Choksi was involved in all corporate matters at Phoenix and was
responsible for Phoenix's capital market needs. He also served on the credit
committee overseeing all corporate investments, including its venture lease
portfolio. Mr. Choksi was a part of the executive management team which caused
Phoenix's portfolio to increase from $50 million in assets to over $2 billion.
Mr. Choksi received a bachelor of technology degree in mechanical engineering
from the Indian Institute of Technology, Bombay; and an M.B.A. degree from the
University of California, Berkeley.
Donald E. Carpenter, age 53, joined ATEL in 1986 as controller. Prior to joining
ATEL, Mr. Carpenter was an audit supervisor with Laventhol & Horwath, certified
public accountants in San Francisco, California, from 1983 to 1986. From 1979 to
1983, Mr. Carpenter was an audit senior with Deloitte, Haskins & Sells,
certified public accountants, in San Jose, California. From 1971 to 1975, Mr.
Carpenter was a Supply Corp officer in the U. S. Navy. Mr. Carpenter received a
B.S. degree in mathematics (magna cum laude) from California State University,
Fresno in 1971 and completed a second major in accounting in 1978. Mr. Carpenter
has been a California certified public accountant since 1981.
Vasco H. Morais, age 43, joined ATEL in 1989 as general counsel to provide legal
support in the drafting and reviewing of lease documentation, advising on
general corporate law matters, and assisting on securities law issues. From 1986
to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of
America's equipment leasing subsidiaries, providing in-house legal support on
the documentation of tax-oriented and non-tax oriented direct and leveraged
lease transactions, vendor leasing programs and general corporate matters. Prior
to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital
Companies in the corporate and securities legal department involved in drafting
and reviewing contracts, advising on corporate law matters and securities law
issues. Mr. Morais received a B.A. degree in 1982 from the University of
California in Berkeley, a J.D. degree in 1986 from Golden Gate University Law
School and an M.B.A. (Finance) in 1997 from Golden Gate University. Mr. Morais
has been an active member of the State Bar of California since 1986.
Item 11. EXECUTIVE COMPENSATION
The registrant is a Limited Partnership and, therefore, has no officers or
directors.
Set forth hereinafter is a description of the nature of remuneration paid and to
be paid to the General Partner and its Affiliates. The amount of such
remuneration paid in 2001, 2000 and 1999 is set forth in Item 8 of this report
under the caption "Financial Statements and Supplementary Data - Notes to the
Financial Statements - Related party transactions," at Note 6 thereof, which
information is hereby incorporated by reference.
Selling Commissions
The Partnership will pay selling commissions in the amount of 9.5% of Gross
Proceeds, as defined, to ATEL Securities Corporation, an affiliate of the
General Partner. Of this amount, the majority is expected to be reallowed to
other broker/dealers.
Through December 31, 1998, $14,250,000 of such commissions (the maximum
allowable amount) had been paid to the General Partner or its affiliates. Of
that amount, $12,327,297 was reallowed to other broker/dealers. None have been
paid since 1998, nor will any additional amounts be paid in future periods.
33
Equipment Management Fees
As compensation for its service rendered generally in managing or supervising
the management of the Partnership's equipment and in supervising other ongoing
service and activities including, among others, arranging for necessary
maintenance and repair of equipment, collecting revenue, paying operating
expenses, determining the equipment is being used in accordance with all
operative contractual arrangements, property and sales tax monitoring and
preparation of financial data, the General Partner or its affiliates are
entitled to receive management fees which are payable for each fiscal quarter
and are to be in an amount equal to (i) 3.5% of the gross lease revenues from
"operating" leases and (ii) 2% of gross lease revenues from "full payout" leases
which contain net lease provisions.
See Note 6 to the financial statements included in Item 8 of this report for
amounts paid.
Incentive Management Fees
As compensation for its service rendered in establishing and maintaining the
composition of the Partnership's equipment portfolio and its acquisition and
debt strategies and supervising fund administration including supervision the
preparation of reports and maintenance of financial and operating data of the
Partnership, Securities and Exchange Commission and Internal Revenue service
filings, returns and reports, the General Partner is entitled to receive the
Incentive management fee which shall be payable for each fiscal quarter.
Available Cash from Operations, as defined in the Limited Partnership Agreement,
is to be distributed as follows:
First, Distributions of Cash from Operations are to be 88.5% to the Limited
Partners, 7.5% to the General Partner and 4% to the General Partner or its
affiliate designated as the recipient of the Incentive Management Fee, until the
Limited Partners have received Aggregate Distributions in an amount equal to
their Original Invested Capital, as defined, plus a 10% per annum cumulative
(compounded daily) return on their Adjusted Invested Capital, as defined in the
Limited Partnership Agreement.
Second, 85% to the Limited Partners, 7.5% to the General Partner and 7.5% to the
General Partner or its affiliate designated as the recipient of the Incentive
Management Fee.
Available Cash from Sales or Refinancing, as defined in the Limited Partnership
Agreement, are to be distributed as follows:
First, Distributions of Sales or Refinancings are to be 92.5% to the Limited
Partners and 7.5% to the General Partner, until the Limited Partners have
received Aggregate Distributions in an amount equal to their Original Invested
Capital, as defined, plus a 10% per annum cumulative (compounded daily) return
on their Adjusted Invested Capital.
Second, 85% to the Limited Partners, 7.5% to the General Partner and 7.5% to the
General Partner or its affiliate designated as the recipient of the Incentive
Management Fee.
See Note 6 to the financial statements included in Item 8 of this report for
amounts paid.
Equipment Resale Fees
As compensation for service rendered in connection with the sale of equipment,
the General Partner is entitled to receive an amount equal to the lesser of (i)
3% of the sales price of the equipment, or (ii) one-half the normal competitive
equipment sales commission charged by unaffiliated parties for such service.
Such fee is payable only after the Limited Partners have received a return of
their adjusted invested capital (as defined in the Limited Partnership
Agreement) plus 10% of their adjusted invested return of their adjusted invested
capital (as defined in the Limited Partnership Agreement) plus 10% of their
adjusted invested capital per annum calculated on a cumulative basis, compounded
daily, commencing the last day of the quarter in which the Limited Partner was
admitted to the Partnership. To date, none have been accrued or paid.
34
Equipment Re-lease Fee
As compensation for providing re-leasing service, the General Partner is
entitled to receive fees equal to 2% of the gross rentals or the comparable
competitive rate for such service relating to comparable equipment, whichever is
less, derived from the re-lease provide that (i) the General Partner or their
affiliates have and will maintain adequate staff to render such service to the
Partnership, (ii) no such re-lease fee is payable in connection with the
re-lease of equipment to a previous lessee or its affiliates, (iii) the General
Partner or its affiliates have rendered substantial re-leasing service in
connection with such re-lease and (iv) the General Partner or its affiliates are
compensated for rendering equipment management service. To date, none have been
accrued or paid.
General Partner's Interest in Operating Proceeds
Net income, net loss and investment tax credits are allocated 92.5% to the
Limited Partners and 7.5% to the General Partner. In accordance with the terms
of the of Limited Partnership Agreement, an additional allocation of income was
made to the General Partner in 2001. The amount allocated was determined so as
to bring the General Partner's ending capital account balance to zero. See
financial statements included in Item 8, Part I of this report for amounts
allocated to the General Partner in 2001, 2000 and 1999.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 2001, no investor is known to hold beneficially more than 5% of
the issued and outstanding Units.
Security Ownership of Management
The shareholders of the General Partner are beneficial owners of Limited
Partnership Units as follows:
(1) (2) (3) (4)
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
-------------- ---------------- -------------------- --------
Limited Partnership Units A. J. Batt Initial Limited Partner Units 0.00017%
235 Pine Street, 6th Floor 25 Units ($250)
San Francisco, CA 94104 (owned by wife)
Limited Partnership Units Dean Cash Initial Limited Partner Units 0.00017%
235 Pine Street, 6th Floor 25 Units ($250)
San Francisco, CA 94104 (owned by wife)
Changes in Control
The Limited Partners have the right, by vote of the Limited Partners owning more
than 50% of the outstanding Limited Partnership units, to remove a General
Partner.
The General Partner may at any time call a meeting of the Limited Partners or a
vote of the Limited Partners without a meeting, on matters on which they are
entitled to vote, and shall call such meeting or for vote without a meeting
following receipt of a written request therefore of Limited Partners holding 10%
or more of the total outstanding Limited Partnership units.
35
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to Item 1 of this report under the caption "Equipment Leasing
Activities," Item 8 of this report under the caption "Financial Statements and
Supplemental Data - Notes to the Financial Statements - Related party
transactions" at Note 6 thereof, and Item 11 of this report under the caption
"Executive Compensation," are hereby incorporated by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)Financial Statements and Schedules
1. Financial Statements
Included in Part II of this report:
Report of Independent Auditors
Balance Sheets at December 31, 2001 and 2000
Statements of Operations for the years ended
December 31, 2001, 2000 and 1999 Statements of
Changes in Partners' Capital for the years ended
December 31, 2001, 2000 and 1999 Statement of Cash
Flows for the years ended December 31, 2001, 2000
and 1999 Notes to Financial Statements
2. Financial Statement Schedules
Allschedules for which provision is made in the
applicable accounting regulations of the
Securities and Exchange Commission are not
required under the related instructions or are
inapplicable and, therefore, have been omitted.
(b) Reports on Form 8-K for the fourth quarter of 2001
None
(c)Exhibits
(3)and (4) Agreement of Limited Partnership,
included as Exhibit B to Prospectus (Exhibit
28.1), is incorporated herein by reference to the
report on Form 10K for the period ended December
31, 1996 (File No. 333-08879).
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: 3/25/2002
ATEL Capital Equipment Fund VII, L.P.
(Registrant)
By: ATEL Financial Services, LLC,
General Partner of Registrant
By: /s/ Dean Cash
--------------------------------------------
Dean Cash,
President and Chief Executive Officer of
ATEL Financial Services, LLC (General
Partner)
By: /s/ Paritosh K. Choksi
--------------------------------------------
Paritosh K. Choksi,
Executive Vice President of ATEL
Financial Services, LLC (General Partner)
37
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the persons in the capacities and on the dates
indicated.
SIGNATURE CAPACITIES DATE
/s/ Dean Cash President, Chairman and Chief 3/25/2002
- -------------------------- Executive officer of ATEL
Dean Cash Financial Services, LLC
/s/ Paritosh K. Choksi Executive Vice President and director 3/25/2002
- -------------------------- of ATEL Financial Services, LLC,
Paritosh K. Choksi principal financial officer of
registrant; principal financial officer
and director of ATEL Financial Services,
LLC
/s/ Donald E. Carpenter Principal accounting officer of 3/25/2002
- -------------------------- registrant; principal accounting
Donald E. Carpenter officer of ATEL Financial Services,
LLC
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act:
No proxy materials have been or will be sent to security holders. An annual
report will be furnished to security holders subsequent to the filing of this
report on Form 10-K, and copies thereof will be furnished supplementally to the
Commission when forwarded to the security holders.
38